July 23 (Bloomberg) -- If you don’t know which way you want
to go in this market, join the crowd.

Rather than commit to specific bullish or bearish debt
wagers, investors are piling into hedge funds that seek to
profit regardless of whether values go up or down. They poured
$18.3 billion into so-called relative-value debt funds in the
three months ended June 30, more than any other of the main
hedge fund strategies during the period, according to Hedge Fund
Research Inc.

The surge in demand shows investors don’t expect this
year’s surprise bond rally to last, even though economists are
ratcheting down their forecasts for just how much rates can
increase by the end of the year.

“You’re seeing people come into the space as a way to
insulate themselves from the adverse impact they expect rising
interest rates to have,” Kenneth Heinz, HFR’s president, said
in a telephone interview.

Investors funneled $29.5 billion into relative-value credit
funds in the first six months of the year, bringing their total
invested assets to $742.6 billion globally, HFR data show.
That’s up from $459.4 billion in 2007.

The debt hedge funds are attracting cash even though their
performance has lagged behind a broad index of corporate debt
this year. They’ve returned 4.76 percent in the first six months
of the year, compared with 5.4 percent on the Bank of America
Merrill Lynch Global Corporate & High Yield Index.

Yield Reach

The concern is that as the Federal Reserve withdraws its
easy-money policies, it will not only send government debt
yields higher but also put an end to what Fed Chair Janet Yellen
called “reach for yield” behavior, which is propping up the
riskiest securities.

Of course, bonds are in the middle of a banner year and no
one wants to miss out on returns in the meantime, either. Yields
on 10-year Treasuries have dropped to 2.45 percent from 3
percent at year-end and U.S. government debt has returned 3.5
percent in 2014.

No wonder investors are punting on making a call on this
market, and putting their money in funds that are supposed to
gain regardless of what happens.